Park Owned Homes

[Keith Hand]

I have some low-income apartment rentals and I am interested in getting into mobile home parks. I have a park under contract with a business partner who already owns a small park in our area. The park has 30 park-owned homes and 5 empty lots that need to be cleared. I understand the idea of selling the POH's and getting lot rents, but I am wondering if that is the best option in my area. Almost none of the parks in our area have any tenant owned homes, so finding lot rent comps is difficult. My business partner owns all the trailers in his park and rents them. The argument is that the headache and expenses are too high for the park to own the homes, but my business partner has not had that experience in our area. Even without any marketing, there is always a waiting list on these homes, and it only takes a few hundred to turn one over, while they rent for $400-$550. His experience is that the repairs are so cheap that the expense ratio is lower than other rentals. The few people I can find paying lot rent in my area are paying $100. The numbers seem to make sense to keep the trailers and rent them out, though I know the overwhelming consensus is to convert them to TOH and collect lot rent. Is this simply because of the headache, or does the math actually make sense? If the math makes sense, is it location based, and could it still make sense in our area to keep the trailers? Also, if we sell them, how do we decide lot rents since there are few comps? Thanks!

[Jeffrey H.]

Parks with 100% Tenant Owned Homes are easier to manage, have a much lower expense ratio, and are a higher quality property because your tenants have pride of ownership of THEIR HOME.

$100 lot rent is dirt cheap and I would not buy a Park with lot rents that low.  Get very comfortable that is the number.  Call all the big MHP's in your metro area and say, "Hey, I am buying a new 3/2 singlewide and want to move it in - what is your lot rent?"

Finally, I have to ask - I hope that your contract with this Park is not based on only the income from these mobile homes?  It is supposed to be based on the lot rent + the value of the mobile homes.  See my post on this here.  If your offer is based on lot rent + home rent then you're over paying and traditional financing can be difficult.

Good luck.